Rate reset: On reducing GST slabs

Since its introduction in 2017, the GST regime has been criticized for its very high tax rates for including multiple state and central levies which were liable to create complications instead of simplifying taxation. The government had indicated that the rates could be reviewed once the system stabilizes. Now, with the fifth year of GST looming, the government has assessed that it is time to consider a reboot, partly because revenues are falling short of expectations despite healthy monthly collections. next month, A group of ministers constituted by the GST Council It is expected to propose changes including merger slabs along with a road map for immediate, short and medium term changes. This mandate expanded on his earlier stated task of rationalizing tax rates to increase revenue. In a nutshell, there are eight effective GST rates, which include zero on essential goods, standard rates of 5%, 12% and 18% for most goods and services, and 28% tax plus GST compensation cess on sin or demerit items. Special reduced rates have been specified for jewellery, precious stones and supplies to exporters.

The effective tax rate under GST has come down from the basic revenue-neutral rate of 15.5% to 11.6%, due to rate cuts across all categories from 2017 onwards, Finance Minister Nirmala Sitharaman said. A lot stems from the hasty introduction and errors of GST. in the initial rate-setting. The council continues to address the real difficulties it has created for the industry sectors, but frequent changes have also changed the basic revenue dynamics. The 18% tax rate, even on insurance premium payments, now accounts for the largest taxable business, as A National Institute of Public Finance and Policy (NIPFP) paper states, Reducing the rate of 18% or merging it with the 12% slab will result in loss of revenue which will have to be compensated by increasing the minimum and/or highest rates. The NIPFP has suggested a rate structure of 8%, 15% and 30% for sin goods to protect revenue concerns while mitigating the need for sharp increases at either end of the spectrum and leaving special rates untouched. This may be less controversial than raising rates on bullion, reportedly proposed to the GoM, which could only encourage tax evasion. Sequencing the implementation of the new rates and avoiding frequent rethinking will be key to minimizing disruptions and boosting investor confidence. The Council should also urgently address the data limits identified by the NIPFP. For several months this year, the government did not disclose the returns filed by taxpayers, while claiming that the GST collection reflects recovery and better compliance. Moreover, several GST rate cuts, which raised concerns over existing resources, were aimed at diluting regional considerations ahead of the crucial elections. With elections to major states soon, the government’s resolve to do a hard reset on GST rates may now be tested.